Corporate Valuation

3 days
Prague, NH Hotel Prague
  • Framework for Corporate Valuation
  • Industry Analysis
  • Analysis of Companies' Competitive Strategies
  • Financial Ratios and EPS Analysis
  • Discounted Cash Flow Models
  • Free Cash Flow Analysis
  • Residual Income Valuation
  • EVA™, MVA and SVA
  • Valuation of M&A's and Restructurings
  • Option-Based Valuation
Corporate valuation is the process of determining the worth of a firm. In order to evaluate new projects, consider mergers and acquisitions, make strategic decisions, or make decisions about investing in the company, the financial analyst must understand the factors that drive corporate value.

The purpose of this course is to give you a good and practical understanding of basic and more advanced techniques used to measure the worth of the company and its investments.

We start with a discussion of the general framework for valuing corporations in the context of the global post-crisis economy, and we give an overview of the valuation methods and models that are applied in practice.

We then explain how industries and companies can be analyzed in a competitive framework. We look at industry characteristics and discuss various competitive strategies and their risks. We present the famous "Porter's Five Forces" model and discuss how companies can be analyzed in the context of that model.

We explain and illustrate how companies can be analysis using "accounting" ratios such as EPS, ROE, P/E, P/BV and how a company's ROE can be decomposed for analysis purposes using the Dupont model.

Further, we explain how corporations can be valued using models based upon projections of earnings and cash flows. We look "dividend discount models" as well as "free cash flow" models, where future cash flows and enterprise value are modeled on more explicit assumptions about firms' "value drivers". We also describe and calculate alternative measures of residual earnings and discuss the use of "residual income" models, including the widely used EVA™ model.

Finally, we explain and discuss how various valuation techniques can be put to work in merger, acquisition, restructuring or divesture situations. Here, we also look at how the method of "option-based valuation" can be used to assess the value of a strategic investment, or of a company in distress.

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 A Framework for Corporate Valuation

  • The role of “Valuation” in financial management
  • Internal and external factors that determine prices in the context of the global economy
  • Overview of corporate valuation techniques

Industry Analysis and Analysis of Companies’ Competitive Strategies

  • Factors that should be included in an industry analysis model
  • Fundamental questions determining choice of competitive strategy
    • Industry attractiveness
    • Competitive advantage
  • Porter’s Five Forces
  • Generic strategy risks
  • Case study and discussion

12.00 - 13.00 Lunch

13.00 - 16.30 Financial Ratios and EPS Analysis

  • Overview: Six categories of financial ratios
  • Common-size balance sheets and common-size income
  • Measures of a company’s internal liquidity
  • Ratios for:
    • operating performance
    • risk profile
    • growth potential
    • external liquidity
  • Decomposing company’s return on equity using the Extended DuPont System
  • The effect of dilutive securities
  • Financial shenanigans
    • How management can manipulate earnings and other financial Information
  • Small exercises

Day Two

09.00 - 09.15 Recap

09.15 - 12.00 Discounted Cash Flow Models

  • Introduction to DDM models
  • The zero growth model
  • The relationship between the zero growth model and the P/E ratio
  • The constant growth model
  • A two-stage growth model
  • Multi-stage growth models
  • Deriving growth rates from accounting ratios
  • Estimating the discount rate using the CAPM and other models
  • The relationship between risk (beta) and the P/E ratio
  • Sensitivity analysis
  • Case study
  • Exercise

12.00 - 13.00 Lunch

13.00 - 16.30 Free Cash Flow Analysis

  • Introduction to free cash flow analysis
  • The company’s value drivers
    • Sales growth
    • Operating profit margin
    • Taxes
    • Working capital investments
    • Fixed capital investments
  • Free cash flow to equity vs. free cash flow to firm
  • Deriving the free cash flows
  • Deriving the discount rate and the enterprise value
  • Analysis of shareholder value creation
  • Practical case study
  • Exercise

Day Three

09.00 - 09.15 Recap

09.15 - 12.00 Residual Income Valuation

  • Defining and calculating residual income
  • The EVA™ Model
  • Adjustments to financial statements in the EVA™ Model
  • Economic Value Added, Market Value Added
  • Forecasting Residual Income
  • Residual Income Implied Growth Rate
  • RI Models: Strengths and Weaknesses
  • RI Models: Applications
  • RI Value Drivers
  • Multistage RI Model
    • Company performance and measures of value added
  • Practical case study
  • Exercises

12.00 - 13.00 Lunch

13.00 - 16.30 Valuation of M&A's and Restructurings

  • Sources of Value Gains from Acquisitions
  • Control Premiums and Minority Discounts
  • Valuation as a Tool to Discover Restructuring Opportunities
  • Valuing Leveraged Buy-Outs
    • Debt capacity analysis
    • The “cash sweep”
  • Valuation for Divestures
    • The break-up valuation method
  • Strategic Valuation
    • The option-based valuation method
    • Approaches to option-based valuation
    • Caveats and limitations

Evaluation and Termination of the Seminar

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